While many singapore dividend investors will praise how good the Capitaland and Fraser Group of REITs are for dividend at 4-6% yield; there is one REIT that has a lower leverage, a more diversified portfolio and of a higher dividend yield than any REIT in Singapore at 8.3%.
This is the largest REIT in Asia and with a REIT manager model which has been praised by Straits Times.
LINK REIT- 8.3% Dividend, Not Taking Debts to Sustain Dividend, 20.6% Leverage Ratio
The title says it all, perfectly sustainable REIT, low gearing at 20.6% that no other Capitaland REIT has been able to match. To cap it off, it maintains a sustainable payout ratio for dividend not overleveraging itself.
I am not kidding, these are facts as listed in its report [See Slide 9. From here on, I will be referring more to its slides as I don't wish to printscreen everything into infographics. Readers can click on the link to view the presentation alongside this article]
Being such a large REIT in Asia and with a strong balance sheet, LINK REIT has an A rating from major credit rating agencies, something that even Singapore REITs are unable to achieve. Due to its strong credit rating, its borrowing cost is at 3.69%.
On Slide 38, it is revealed LINK REIT has 55% debt in RMB and 24.5% debt in SGD. The borrowing cost of these 02 currencies are now reducing and this means LINK REIT's all in borrowing cost will reduce in time to come, this will improve distribution per unit and justify the story of a REIT with growing distribution.
Higher Occupancy
Most of LINK REITs properties have 95% or higher occupancy rates, it shows how good the proeprties are located and highly sought after.
Essential Services Tenant Mix
In terms of tenant profile, LINK REIT is closer to that of Singapore's Fraser Centrepoint Trust, it positions itself as a neighbourhood mall catering to the masses with no luxury malls brand name like Paragon or ION orchard.
In Slide 64-68, it can be seen that in Hong Kong, its top 3 tenant types are the essential services of supermarket, market stalls and F&B which forms close to 60%. In Singapore and China, the essential services segment forms 40% of the tenant mix. Hence despite the downturn in 2 of its markets, many of its tenants have registered lower than national average decline (after all, they are essential services, essential for the livelihood of the people)
Revenue Growth and Internal Manager Model
Despite the weakness in retail, the usual positive rental reversions have helped LINK REIT report a larger revenue. Singapore was a strong point where rentals went up by 18% in Jurong Point and Thomson Plaza.
LINK REIT uses an internal manager model. Unlike Capitaland and Fraser REITs, where a percentage of the distributable income goes to another company; there is no loss of revenue in rental income within LINK REIT. Hence in a time where distributable income is growing, all the gains are given to Unitholders of LINK REIT. Even if they acquire new malls, only the Unitholders benefit.
It is a model superior to Singapore's but Capitaland, ESR and Fraser Property refuses to give up on because of the loss in profits. There is no conflict of interest within LINK REIT. Unitholders can be assured the REIT is shareholder friendly and always acts in the interest of Unitholders.
Diversified Portfolio
While it does have majority of its portfolio in Hong Kong and China, there is a significant portion in Singapore and Australia. In Singapore, the REIT owns Jurong Point, Thomson Plaza, Ang Mo Kio Hub and is one of the largest retail landlord here.
So Unitholders are not entirely exposed to China and HK markets. And as said, their tenant profile here are close to the essential services on virtue that these malls are positioned as neighbourhood malls.
Many Positives
The icing of the cake is of course how low the leverage of the REIT is at 20.6%; this is because the REIT is not forced to buy overpriced properties from a parent company and demonstrates how the internal manager model has no conflict of interest. LINK REIT tends to buy only properties when there is strong returns for its unitholders, it does not have any conflict of interest where a parent company will try to monetise profits at the expense of a child REIT.
All distributable income it earns from its portfolio of properties worldwide goes to Unitholders. As of its price of HK$32.1, it is now at 8.3% dividend.
As said in its debt profile, its all-in interest cost is set to go down because China and Singapore is facing an environment of lowering interest rates. This is a positive and possibility of growing its dividend per unit.
I will not be surprised that the REIT will end up giving 1.6 HK cents per semi-annually by 2030 due to positive rental reversion and lower interest expense. It will make the REIT a future 10% dividend yielder.
As of now LINK REIT is already giving 1.34 HK cents per semi-annual basis.
At an assumption of a dividend of 3.2 HK cents and a 6% dividend yield, I have a target price of HK$53 for this REIT.
What I am Doing
I am definitely interested in this REIT. In an environment where Singapore REITs are using more leverage and yet giving less yield than LINK, I would invest more in LINK REIT. Yes there is exchange rate risk and commission from changing my currency from SGD to HKD. But I think it is worth it.
Every year, I will be earning 3% more in dividends and if I keep LINK REIT for 3 years or when it reaches my target price, it will exceed any returns if I had kept my money in Singapore REITs.
While Sing Dollar has appreciated about 1% annually against the HKD dollar, I still have 2% more in dividend as upside. As such I will keep minimal Sing Dollar but transfer most of it to HK Dollar to purchase LINK REIT. My exposure to LINK REIT will grow from its current 5,500 shares (when the price is right) and it will become one of my larger dividend contributor.
How Can Investors Buy LINK REIT in the Hong Kong Exchange
The digital brokerages of Moomoo, Tiger and Webull has access to the Hong Market. All Singapore investors have to do is (I) sign up for an account, (ii) tick the option to trade in the Hong Kong Market, (iii) deposit money into these digital brokerage account and (iv) pay the the approx 0.5% exchange rate fee to convert SGD to HKD and you are all good to buy LINK REIT (Code Symbol 0823.HK).
Alternatively, the traditional brokerages of DBS, OCBC, Maybank, UOB Kay HIan also allows you to buy HK stocks but you need to complete a few forms to get things processed and done. They allow foreign currency conversions as well.
But I will still recommend using the first option of digital brokerages because they are easier and have less commission. Currently, I am not paid or is being sponsored by them, so you can be assured my intent is not financial nor have conflict of interest.
